Business Page – August 20, 2000

The Uneven Hospitality Playing Field

Introduction

Small societies throw up agonizing
contradictions for commentators, journalists and professionals. The
problems are compounded when one is acting in more than one of these
roles, wearing two hats as it is sometimes put. In a given situation or
role one can find oneself on one side of an issue. Then in another, it
is not unusual to find that one is almost forced into quite the opposite
position on the same issue. How can such actual and apparent conflicts
be reconciled, if at all? Does one take a position in one role and
ignore the other or abstain from both?

This dilemma becomes even more acute in
Guyana where everyone attributes to others sinister, ulterior motives
whether of vested or self-interest, profit or self-promotion. Yet often
it happens that only those with some interest are informed enough to
address issues in which they are directly involved. Some cases may be
more general than others involving national rather than sectoral issues.
Or it may pit one’s professional role against one’s religious or
personal values.

Should a woman attorney who is also an
activist in child abuse matters for example rigorously cross-examine a
five year old in the interest of defending her male client accused of
rape? Should a professional accountant who deals with the tax
authorities in his professional work comment publicly on wider taxation
issues at the risk that those comments can so easily be taken as
personal criticism or, heaven forbid, cause one’s clients to be
subject to a greater degree of scrutiny than might otherwise be the
case?

Does that mean that Business Page should
avoid addressing tax or business issues in which its contributor has a
professional interest whether direct or indirect assuming that no
professional confidences are breached? In the hierarchy of
responsibilities, which takes precedence: religious, public,
professional or personal interest? And what about the situation in which
the public interest may operate to the detriment of one’s client? Does
being selective or inhibited in the issues addressed by public
commentators not amount to self-censorship which compromises integrity?

It has actually been said to this writer
that you cannot run an accounting practice and be a critic, no matter
how constructive, or you jeopardize the future of your business. Should
public interest matters be subsumed by professional or business success?
This is a problem many of us must wrestle with and this article once
again presents that dilemma.

Competition

Every businessperson should welcome
competition. It prevents complacency, provides challenges and enhances
performance. Yet no matter how courageous the businessperson, he will
find that he is at a serious disadvantage when the competition is unfair
and the playing field uneven. This is a comment/complaint which we often
hear from our businesspersons particularly in relation to special
concessions granted to foreign investors operating in Guyana or goods
“dumped” in Guyana for sale at prices against which our own cannot
compete. Sometimes the unfair competition comes from the State such as
GTV’s competing against private television houses or the GDF competing
with private aircraft operators. More often than not these criticisms
have more than academic substance. They are real threats to the success
of the domestic entity, jobs, taxation and the economy as a whole.

Yet sometimes subconsciously and at other
times quite intentionally the same business persons perpetrate the same
behavior and business practice of which they complain. It is as though
their lament is founded not on some principle but responds to threats to
their profitability and survival or from self-interest. My own
experience at the Hotel Tower has emphasised the extent to which the
playing field has been made uneven and placed some players at
considerable disadvantage.

But as this piece will show the problem
is far more widespread - indeed it is pervasive in many areas of
activities in Guyana and comes in all forms. What is worse is that the
Government by some of its purchasing policies is contributing to tax
evasion and the inequity of the playing field which has had a
detrimental effect on some of its own ventures including Guyana Stores.

Georgetown Club

The Georgetown Club, one of Guyana’s
oldest clubs having celebrated its centenary about four years ago is
arguably the most exclusive and prestigious club in Guyana. Admission is
by balloting and “one voting paper to reject, to three voting papers
to admit shall exclude a candidate.” Not surprisingly therefore its
membership constitutes the “cream” of Guyana society. It is also a
businesspersons’ club that offers members and guests the right
environment for business dining.

It is supposed to be a members’ club
catering to the needs of its members. Yet recent publicity suggests that
it does much more than this. It carries on “trading or business” in
the most blatant fashion but manages to escape the tax net even though
it includes among its members persons who must be aware that the Club
does business with more than just its members. If we look at some of the
recent activities held there we see on the list cocktails by Universal
Development Company Limited, annual general meetings by Citizens Bank
and Sterling Products Limited and perhaps most significantly a seminar
by the Guyana Revenue Authority. The Club offers to members and temporary
membersaccommodation in thirteen rooms. All this is fine and
the directors of the Club should be complimented for the standards which
they have managed to maintain and their entrepreneurial spirit. But the
Club appears to enjoy tax concessions which its competitors do not.

There is a principle in taxation (called
mutual trading) reinforced by cases that have come before the Courts in
several jurisdictions that a person cannot make a profit out of himself.
By extension clubs and other incorporated associations and indeed
incorporated entities such as the Georgetown Club which have activities
which amount to trading but which have no dealings with outsiders cannot
be said to have made a profit for tax purposes. While such transactions
can amount to trading the surplus resulting is not to be treated as a
trading profit, a principle established in the case Cornish Mutual
Assn. Co. v. C.I.R. On the other hand the authorities are quite
clear that if a club has receipt from non-members, such as green fees,
any profit there from is taxable: see Carlisle and Silloth Golf Club
v. Smith. On the same principle a political organisation which
published a newspaper for which members subscribed was held liable in
respect of advertising revenue.

The same golf club case referred to above
also established that by temporary members subscriptions and green fees
were not of the same nature as the subscriptions of full members and
constituted assessable income in the hands of the club. It is apposite
to note that in order to use the hotel facilities of Georgetown Club a
person other than a member must become a temporary member whose
membership according to the rules of the Club is for the period of
residence only. This is clearly artificial and the Club has been allowed
not only to escape taxation on its profits but to compete most unfairly
with legitimate businesses which have to pay taxes undercutting them by
a significant price differential. The arithmetic is quite simple: for
every $1,000. surplus earned by Georgetown Club a tax paying hospitality
entity must earn $1,538 to arrive at the same net position.

In the context of the statutory
provisions in Guyana, the Corporation Tax Act specifically provides that
exempt income of any ecclesiastical, charitable or educational
institution does not extend to income derived from a trade or business
carried on by the institution. It is difficult to find justification for
the Georgetown Club remaining a non-tax paying entity when a significant
portion of its revenues are derived from commercial activities.

Hotel Accommodation Tax

Another loophole (facility?) in the law
which Georgetown Club and some other hotel operators exploit or benefit
from is the exemption from the Hotel Accommodation Tax of “a group of
buildings comprising not less than sixteen bedrooms.” Georgetown Club
happens to have only thirteen rooms and its guests, sorry temporary
members, are not charged the 10% room tax payable under the Act. The
industry also has as one of its prominent players a group of managers
which manages facilities which individually are less than sixteen rooms
but in aggregate amount to considerably more. The sixteen room and above
facilities including Le Meridien, Hotel Tower and Ocean View contribute
substantial sums to the Government but which do not necessarily go to
the development of the sector, despite references to that policy when
the legislation was first considered. This is almost a free ride by the
so-called small operators which many countries depending on tourism do
not encourage. Indeed in several of those countries the exemption
applies to far fewer rooms.

These practices make it difficult for
others to compete whether in terms of price or service and cry out for
action by the tax and tourism authorities if we seriously want to
promote tourism. But it is not only the authorities which have to do
something. The Chairmen of GA2000 and Banks DIH rightly call for the
application of the law and an even playing field not only in relation to
protecting their own products but to business generally. The Chairman of
Sterling Products Limited is also a director of Hotel Tower but must
have agreed with the decision to take SPL’s meeting to Georgetown
Club. While not wanting to appear to favour an entity on whose Board he
sits, using another tax-paying entity would have resolved this dilemma
appropriately. Businesspersons should support legitimate businesses
because they must realise that by supporting non-taxpaying entities they
contribute to the continuing narrow tax base which means that the burden
of taxation is unfairly borne by that narrow base.

Georgetown Club has among its active
members leading figures individuals including government ministers,
judges, professionals and businesspersons who would not want to be seen
to be associated with measures that could be construed as at best
skirting the tax laws. Surely they do not condone or engage in such
practices in their own tax affairs so why do it so publicly? Perhaps a
lack of awareness or consciousness is responsible as conversations with
several individuals revealed, but the problem is becoming a pervasive
threat to the tax base and a disincentive to investment.

Christopher Ram is a member of the
Georgetown Club and Receiver-manager of Hotel Tower Limited.